10 ways to organize for digital innovation in financial services

Financial institutions of all sizes around the world are joining the digital revolution. In our work and research at the Center for Financial Inclusion at Accion and the Inter-American Development Bank we have seen some best cases of institutions shifting toward digital as well as some failures. At the end of this month we’ll be discussing strategies to pursue digital innovation as part of the Foromic in Buenos Aires. (Join us for our session on Tuesday, October 31st at 11:15 am!) In the meantime, for institutions that want to start down the path of digital innovation, here are a few of our top strategy suggestions.

1. Make sure you actually want to digitize.

Some institutions are digitizing because they have undertaken extensive research on what value digitization will bring to their institution. These analyses involve things like cost reduction, increased access, increased efficiency, better record-keeping, or all of the above. But others are digitizing, more or less, because they see their peers doing it. Remember when your mom told you not to jump off a bridge just because everyone else was? The same applies here. There are some institutions that will do just fine without pursuing a full digital strategy right now. And that is ok. A good rule of thumb here is you’re likely better off not digitizing at all if you are only going to “phone it in.”

2. Determine what cannot be digitized.

Forthcoming research from CFI findsthat even in a digital age there are particular touchpoints and processes that customers require real human beings for. For example, when something goes wrong, and it will, customers want to interact with a person to get the issue resolved. Have you ever called a customer service line and been frustrated that the chatbot or touchtone phone menu is not understanding, or even answering, your question? Financial services users in emerging markets feel the same way about specific points in their financial journeys. Find out what these look like for your customers and keep those human interactions sacred throughout the digitization process.

3. Ensure that digitization is a mandate from the top.

If senior leadership is not pushing for digitization across the organization, it will likely not happen. For instance, we found in CFI’s researchon partnerships between fintechs and financial institutions that ING requires all partnerships with fintechs to have a “sponsor” at the top – thus establishing buy-in at two levels of the institution to ensure the partnership receives the attention it needs to move to implementation. We see institutions like Bancolombia lean toward innovation when their CEOs get involved. And incidentally, Bancolombia’s president, Juan Carlos Mora Uribe, previously served as the banking group’s head of innovation. Such senior support signals that digitization is a priority for employees.

4. Build digitization into your key performance indicators

Moving toward digital systems, processes, and touchpoints simply cannot be one item in an institution’s long to-do list. It has to be built into performance metrics of individual employees and reported in key performance indicators to investors and the board. If digitization is a determinant of success or failure of the institution, it will happen. If it is a process that would be nice to have, the legacy systems and processes of the institutions have a higher likelihood of keeping it from success.

5. Build nimble, flexible, cross-departmental teams.

For digital innovation to be successful, it must involve many different teams, from product development to risk and compliance to accounting to information and technology. Teams that work across these different departments, anticipating the needs of a variety of internal stakeholders, are more likely to lead successfully. DO NOT, under any circumstances, simply assign the responsibility of digitization to your IT department alone.

6. Hire the right people.

The Group Executive Chairman of BBVA, Francisco González, was a programmer at one point in his career, and upon being named to his position began a process of digitizing the bank. With his background, González understands what the process of digitization entails. Having the right people to lead the process of digitization is critical to ensuring success. If your institution has no experience with digital systems, you probably need to do some hiring before beginning down the road of digitization.

7. Test innovation first on a small scale … safely.

One of the biggest complaints that large institutions make about entering into partnerships centered on digitization is that such processes get stuck when they go through the approvals processes with different parts of the institution. A potential initiative might get stuck in the compliance group, or may not immediately plug into existing back end systems, or may even get held hostage by a reticent board (see strategy #1). We see institutions like BBVA Bancomer creating “sandboxes” for innovation, insulating initiatives from a full approvals process if they can be built and tested under a particular risk threshold as previously determined by the financial institution. Find ways to test innovation and digital solutions this way, on a small scale, to better understand whether they are worth moving to large-scale implementation. IDB discusses such smaller-scale testing efforts in its recent blog post on innovation hubs and sandboxes.

8. Don’t reinvent the wheel.

Most financial institutions have moved toward digitization, so you are not alone! Financial services providers can hire consultants that specialize in digitization, can partner with another institution, or can join groups of like-minded institutions around the world and learn from them as part of industry associations. If you want to hear about how other institutions have digitized, again, you can join our session at Foromic this year.

9. Distinguish between your core systems and processes and peripheral systems and processes. Develop internally for the former, and partner for the later.

There are systems and processes that are core to the identity of financial institutions that you’ll want to protect closely, keeping the process of digitization internal to the institution. For more peripheral systems and processes, however, you can innovate through partnerships, testing different models and seeing what works. This differentiation will be different for every financial institution, as some hold their customer relationships as core, others hold their banking technology as core, and still others hold their risk assessment methodologies as core. For the peripheral systems, however, there is more room for testing and innovating. But how to test several solutions in an affordable way? This is not an easy task. To fill this void, the Inter-American Development Bank through the Multilateral Investment Fund (MIF) has supported a program – Finconecta to precisely test integrations between selected fintechs from all over the world and financial institutions in the region via a virtual mass-api platform.

10. Don’t forget to bring your customers along with you.

In the process of digitization, customers also experience a transition. In this transition, don’t forget to pay attention to the needs of customers, empowering them with the tools and resources they require to embrace the transition - or to opt out if they still want to use their services as they have. Consult specialists—either internal or external—who can think about and collect feedback on the customer journey to this end.

The process of digitization does—and should—look different for every financial institution. But we hope that as institutions pursue these kinds of digitization strategies, such transitions can be made thoughtfully and with the ultimate purpose of better, more affordable products in mind for consumers.

Sonja E. Kelly

Sonja conducts and facilitates financial inclusion research at CFI, directing the CFI Fellows Program, developing frameworks to understand critical concepts like financial health and financial capability, and facilitating the Global Microscope research. She serves as research lead on many topics related to financial inclusion. In her own research and work, Sonja focuses on regulation and policy, the role of banks in financial inclusion, and especially vulnerable populations.

Twitter @SonjKelly

Sergio Navajas

Sergio Navajas is a senior specialist at the Multilateral Investment Fund, member of the Inter-American Development Bank Group where he leads projects and research on microfinance, focusing on the improvement and development of robust legal and regulatory frameworks to enhance the industry’s efficiency and transparency.